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IPOs including Reits grind to halt as Covid-19 jitters hit markets

Optimism dampened as businesses hurt by broken supply chains, disrupted production and flagging demand for goods and services

Industry players note that SGX has been taking active steps to stay relevant and competitive as a listing venue.


VOLATILITY across global stock markets as the Covid-19 outbreak spreads has put a brake on initial public offers (IPOs) including real estate investment trusts (Reits) and business trusts that are in the pipeline as travel plans and face-to-face meetings have been disrupted, squashing hopes for a recovery.

Singapore's IPOs were projected to remain unchanged to slightly higher than the 11 launched last year, with the easing of the US-China trade spat and Brexit now a fact. But the Covid-19 outbreak threw a spanner in the works. It has dampened optimism as businesses are affected by broken supply chains, disrupted production and flagging demand for their goods and services due to the outbreak.

Industry leaders and lawyers tell The Business Times (BT) that while deals are still being discussed, most IPO aspirants prefer to remain on the sidelines as concerns over the broader economic impact of the virus outbreak have squeezed company valuations.

"There are still deals being done - just last month, we were the joint issue manager, bookrunner and underwriter for the Elite Commercial Reit. However, the situation now is not optimal because of the volatility in the market. Pricing a deal in such an uncertain and volatile environment is obviously not ideal,'' said David Cheng, head of corporate finance, OCBC Bank.

Tham Tuck Seng, capital markets leader at PwC Singapore, said: "We expect to continue seeing a few listings in the next one to two months as a lot of preparatory work had been done before the DORSCON level was raised to orange.

"However, whether these companies want to be listed during this time will very much depend on the valuation they can get which may be discounted given the heightened uncertainties and volatilities in the global financial market, and also the risk-off approach that investors are beginning to adopt."

For IPOs to be successful, the market needs stability to price, bookbuild and execute the deal, others said.

IPO schedules have been disrupted as companies cut back on travel and staff are discouraged from non-essential travel. Face-to-face meetings and negotiations have been drastically reduced.

Sponsors are unable to conduct due diligence, and accountants have unable to carry out site inspections and audits especially on companies overseas. Organising roadshows and hosting investor meetings have become challenging too, especially if it involves management of listing aspirants based in China and countries badly affected by the outbreak.

But some companies have pushed ahead with their plans to list, looking beyond valuations and at other factors like broadening investor base and regulatory framework.



So far this year, Singapore has seen the listing of four companies: Indonesian coal trading and shipping company, Resources Global Development; Elite Commercial Reit; Russian agri and dairy firm Don Agro International and water treatment company Memiontec Holdings. United Hampshire US Reit, which is offering units at US$0.80, or S$1.12, each, will debut on Thursday.

Despite the challenging times, listing aspirants include Reits and business trusts. "In this uncertain and volatile market, investors will adopt a risk-off approach and this may favour defensive stocks like Reits and business trusts,'' Mr Tham said.

Continued inflow of work and interest are evident from sectors such as healthcare, technology, industrial and consumer - where there are proven companies which investors here are familiar with and like. There are also those listed companies looking to spin off separate listings on other operations.

While the Covid-19 outbreak has affected IPO markets globally, experts say the Singapore market faces other challenges, including competition from other bourses in the region.

"The main challenge as I see it is the relatively small pool of retail investors and the lack of institutional investors. The smaller pool of investors generally results in lower valuations,'' said Min-tze Lean, an associate principal in the Corporate & Securities Practice Group at Baker McKenzie Wong & Leow LLC.

Mr Tham said there is also the perception that the Singapore market has "lower liquidity and volume and comparatively less attractive valuations".

"But we must accept that SGX is not a one-size-fits-all exchange. It has its niche sectors, such as Reits, business trusts, healthcare, food and beverages and this means that liquidity will still be available for the right company at the right price,'' he said.

Mr Lean does not think public listings have become too expensive or onerous given the regulatory obligations.

"It is not really a question of costs or onerous standards. The bigger challenge facing listings on the SGX would be the depth of its market like a small pool of retail and institutional investors, and this in turn poses challenges to a company maintaining valuations and trading liquidity post-listing,'' he reckoned.

This is why even though SGX has given the go-ahead for companies with dual-class shares (DCS) structures to seek a primary listing on its main board, nothing much has changed.

"I do not think facilitating dual class listings is a panacea to Singapore's challenges as a market. It removes an excuse for a company to use for not listing on the SGX, but it does not address the main challenge of market depth," Mr Lean said.

DCS structure may not be the key consideration in listing decisions for all companies seeking IPOs.

Mr Tham said: "As investors here are generally earning and cash flow focused, valuation for high-tech innovative companies, which are the primary targets of DCS offerings, may not be as attractive and hence we don't find many of such listings here. However, it is important to have DCS as an offering to show the diversification of Singapore's capital market.''

Industry players note that SGX has been taking active steps to stay relevant and competitive as a listing venue. These include providing for the DCS structures, collaborations with Tel-Aviv Stock Exchange and Nasdaq, market maker and liquidity provider programmes, scrapping of quarterly reporting requirement for listed companies unless they are viewed as higher risks and the introduction of the S$75 million Grant for Equity Market Singapore (GEMS) by the Monetary Authority of Singapore (MAS) to help issuers to defray some listing expenses. However, these need time to bear fruit.

Mr Tham said: "Some of these have not yet gained much traction. SGX has to continue in its effort to innovate and offer diversified products, taking advantage of Singapore's transparent rule of laws, stable political environment and leverage this as a springboard to grow in Asean and South Asia.''